Good morning!
My optimistic comments around the UK market yesterday were overshadowed by Nvidia ($NVDA), which fell by 16% and lost $600bn in market value - the largest fall in value by a single stock in financial history. The Nasdaq as a whole fell by 3%.
The reason? Fears around Chinese AI startup DeepSeek, which claims to offer AI language models that require only a fraction of the computing power of US-based rivals.
It’s fascinating how narratives can change so suddenly. A bubble can persist for years, and then collapse for particular reasons that few, if anyone, could have predicted. But the overvaluation was visible for a long time in advance. Yesterday’s events look to me like they could herald the beginning of the end of the AI boom.
If that’s true, it could be relevant for a theme I’ve highlighted before - the excessive concentration of ETF products in Mag 7 stocks such as Nvidia. In my view, this creates the risk of unexpected volatility for investors who wrongly assume that these products are more diversified than they really are.
From stockcharts.com, here are the weightings of the top three S&P 500 components, which together account for nearly 20% of the value of the index:
Perhaps if we see unexpected volatility in the US indexes, that could lead to renewed interest in non-US markets (such as the UK) and in active investing? Or perhaps that’s just wishful thinking on my part!
Nvidia’s stock price has still had a very good year:
And here are its value metrics (updated to reflect yesterday's fall). I’m not tempted yet!
1pm: all done for now, thank you.
Companies Reporting
| Name (Mkt Cap) | RNS | Summary | Our view (Author) |
|---|---|---|---|
Rentokil Initial (LON:RTO) (£9.8bn) | TU | FY24 trading in line. | |
RS (LON:RS1) (£3.2bn) | Q3 TU | Full year pre-tax profit is likely to be “around the bottom end of the consensus range”. | |
Computacenter (LON:CCC) (£2.2bn) | FY TU | 2024 adj pre-tax profit to be “at the lower end of the range” of forecasts. Y/E net cash £480m. | GREEN (Roland - I hold) |
SSP… |
